Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Certain statements contained in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “may,” “might,” “can,” “will,” “to be,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “likely,” “continue,” “ongoing” or similar expressions, or the negative of such words, are intended to identify “forward-looking statements.” We have based these forward-looking statements on our current expectations and projections about future events. Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include those under the caption “Risk Factors” in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K filed with the SEC on February 27, 2025 (“Annual Report”), and in our other filings with the Securities and Exchange Commission (“SEC”). Statements made herein are as of the date of the filing of this Form 10-Q with the SEC and should not be relied upon as of any subsequent date. Unless otherwise required by applicable law, we do not undertake, and we specifically disclaim, any obligation to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes that appear in Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes for the year ended December 31, 2024, which are included in our Annual Report.
Overview
We are a clinical-stage biopharmaceutical company focused on developing novel small and large molecule product candidates for immuno-inflammatory diseases. Our proprietary KINect drug discovery platform combined with our preclinical development capabilities allows us to identify and advance potential product candidates that we may develop independently or in collaboration with third parties. In addition to identifying and developing our novel product candidates, we are pursuing strategic alternatives, including identifying and consummating transactions with third-party partners, to further develop, obtain marketing approval for and/or commercialize our novel product candidates. We also provide contract research services to third parties enabled by our early-stage research and development expertise.
Our Key Product Candidates
Bosakitug, an Investigational, Novel Anti-TSLP Monoclonal Antibody
Bosakitug (ATI-045) is an investigational, novel, humanized anti-thymic stromal lymphopoietin (“TSLP”) monoclonal antibody that specifically binds to human TSLP, blocking its interaction with the receptor complex and disrupting signal transduction. This mechanism prevents immune cells targeted by TSLP from releasing proinflammatory cytokines. Bosakitug has potential best-in-class properties, including a very high affinity to TSLP, very high potency, an extremely low dissociation rate from TSLP leading to long residence time and enhanced neutralization activity, and a half-life that can potentially support an extended dosing interval . Bosakitug has the potential to treat a variety of atopic, immunologic and respiratory diseases. We exclusively license global rights (excluding Mainland China, Macau, Hong Kong and Taiwan (“Greater China”)) to bosakitug from Biosion, Inc. (“Biosion”).
In a Phase 2a, single-arm, proof-of-concept trial in 22 U.S. patients with moderate to severe atopic dermatitis conducted by Biosion, bosakitug demonstrated a positive pharmacodynamic, safety and efficacy profile, with 94% of patients achieving a 75% improvement in the Eczema Area and Severity Index (“EASI”), 65% of patients achieving EASI-90, and 88% of patients achieving an Investigator’s Global Assessment (“IGA”) score of 0 or 1 (clear or almost clear skin), at week 26 (n=17). Bosakitug was generally well-tolerated with no serious adverse events reported. The most common treatment-emergent adverse event was headache (22.7% of patients). Grade 1 injection site reactions, primarily tenderness, occurred in 47.6% of patients.
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In June 2025, we initiated a Phase 2 trial to investigate the efficacy, safety, tolerability, pharmacokinetics (“PK”) and pharmacodynamics (“PD”) of bosakitug compared to placebo in approximately 90 patients with moderate to severe atopic dermatitis. The primary endpoint is percent change from baseline in EASI at week 24. Secondary endpoints at week 24 include EASI response (EASI-50, EASI-75, EASI-90), validated IGA response, body surface area (“BSA”) response, and Peak Pruritus Numerical Rating Scale (“PP-NRS”) score, relative to baseline. We expect to announce top-line data in the second half of 2026.
Bosakitug is also currently being studied in severe asthma, chronic rhinosinusitis with nasal polyps and moderate to severe chronic obstructive pulmonary disease in China by Chia Tai Tianqing Pharmaceutical Group, Co., Ltd. (“CTTQ”). CTTQ licenses bosakitug from Biosion in Greater China. Our clinical focus for bosakitug will remain on dermatological immuno-inflammatory indications and further global (excluding Greater China) development in respiratory indications will be dependent on entering into potential partnerships.
ATI-2138, an Investigational Oral Covalent ITK/JAK3 Inhibitor
ATI-2138 is a highly potent and selective novel investigational dual inhibitor of interleukin-2-inducible T cell kinase (“ITK”) and Janus kinase 3 (“JAK3”) for the potential treatment of T cell-mediated autoimmune diseases. The ITK/JAK3 compound interrupts T cell signaling through the combined inhibition of ITK/JAK3 pathways in lymphocytes.
In July 2025, we announced positive top-line results from our open-label, single-arm Phase 2a trial of ATI-2138 in patients with moderate to severe atopic dermatitis. The trial met the primary and key secondary endpoints. The trial was designed to investigate the safety, tolerability, PK, efficacy, and PD of 10 mg of ATI-2138 administered twice daily (“BID”) for 12 weeks. The trial enrolled 14 patients in the United States, with 12 patients completing treatment and up to 10 patients available for the per protocol analysis. The primary endpoints were safety related parameters and the secondary endpoints included PD and efficacy related measures. No meaningful safety findings were observed, and ATI-2138 was very well tolerated. We observed consistent and rapid improvement across the efficacy assessments, with a mean and median improvement in EASI score at week 12 of 61% and 77%, respectively. Excluding one patient determined to be a statistical molecular outlier by more than four standard deviations who demonstrated systemic findings inconsistent with atopic dermatitis alone including significant non-lesional inflammation and who was not fully compliant with study drug administration, the mean and median improvement in EASI score at week 12 was 77% and 82%, respectively. At week 12, 63% of patients experienced a greater than or equal to 4-point improvement (which is considered a clinically meaningful response) in PP-NRS. ATI-2138 demonstrated near complete and sustained inhibition and occupancy of ITK ranging from approximately 90% at peak to 60% to 70% at trough, and a high level of inhibition of JAK3. Proteome and transcriptome lesional skin tap strip analyses showed significant ATI-2138-dependent reduction of multiple inflammatory pathways associated with ITK, including strong downregulation of Th2, Th17, and T cell receptor (“TCR”) pathways, along with the Th1 pathway and fibrosis-related markers.
We intend to further develop ATI-2138 in alopecia areata and are exploring the potential of ATI-2138 in additional indications that are relevant to the mechanism of action, including vitiligo.
ATI-052, an Investigational, Novel Anti-TSLP and Anti-IL-4R Bispecific Antibody
ATI-052 is an investigational, novel, humanized anti-TSLP and anti-interleukin-4 receptor (“IL-4R”) bispecific antibody that exhibits high binding affinity to and dual blockade of both the upstream TSLP receptor signal transduction and downstream IL-4R activation thereby inhibiting this central proinflammatory pathway. ATI-052 targets TSLP, which sits at the top of the inflammatory cascade; by targeting IL-4R, it blocks both downstream IL-4 and IL-13, which are key cytokines involved in Th2-mediated inflammation and allergic diseases . ATI-052 utilizes the same TSLP antigen-binding fragment (“Fab”) as bosakitug but is engineered to bind more tightly to the neonatal Fc receptor (“FcRn”), potentially extending its half-life. ATI-052 has the potential to treat a variety of atopic, immunologic and respiratory diseases. We exclusively license global rights (excluding Greater China) to ATI-052 from Biosion.
Our Investigational New Drug (“IND”) application for ATI-052 was cleared by the U.S. Food and Drug Administration (“FDA”) in April 2025, and in June 2025, we initiated a Phase 1a/1b program. The randomized, blinded, placebo-controlled Phase 1a portion is designed to evaluate the safety, tolerability, PK and PD of ATI-052 in healthy
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volunteers receiving single ascending doses (“SAD”) and multiple ascending doses (“MAD”). The Phase 1b proof-of-concept assessment in up to two undisclosed indications is expected to follow the Phase 1a SAD/MAD portion of the program. We expect to announce top-line results from the Phase 1a SAD/MAD portion in early 2026, followed by the top-line results from the Phase 1b portion in the second half of 2026.
Other Investigational Product Candidates
Lepzacitinib, an Investigational Topical “Soft” JAK 1/3 Inhibitor
Lepzacitinib (ATI-1777) is an investigational topical “soft” JAK 1/3 inhibitor for the potential treatment of atopic dermatitis and potentially other dermatologic conditions. “Soft” JAK inhibitors are designed to be topically applied and active in the skin, but rapidly metabolized and inactivated when they enter the bloodstream, which may result in low systemic exposure.
In January 2024, we announced positive top-line results from our Phase 2b multicenter, randomized, double-blind, vehicle-controlled, parallel-group trial of lepzacitinib in patients with mild to severe atopic dermatitis. The trial was designed to evaluate the efficacy, safety, tolerability and PK of multiple concentrations (0.5%, 1% and 2%) of twice daily (“BID”) treatment with lepzacitinib and a single concentration (2%) of once daily (“QD”) treatment with lepzacitinib. The trial randomized 250 patients with mild, moderate or severe atopic dermatitis, including adults and children as young as 12 years old, across 30 clinical trial sites in the United States. The trial met the primary efficacy endpoint, the percent change from baseline in EASI score at week 4, with statistical significance for patients treated with lepzacitinib 2% BID compared to patients treated with vehicle (69.7% versus 58.7% in the pooled vehicle group, p=0.035). In addition, a PK analysis showed minimal levels of exposure to lepzacitinib. The mean steady state trough drug levels at week 4 were 0.319 ng/mL, representing 0.7% of IC50 for JAK 1/3 inhibition in whole blood. In total, 97% of lepzacitinib plasma samples from dosed patients had concentrations below 1/10th of the IC50, and six samples (from five lepzacitinib treated patients) of 764 samples analyzed had concentrations above 1/4 of the IC50. No meaningful safety findings were observed and lepzacitinib was well tolerated.
We are currently seeking a global development and commercialization partner for this program (excluding Greater China). In 2022, we granted Pediatrix Therapeutics, Inc. (“Pediatrix”) exclusive rights to develop and commercialize lepzacitinib in Greater China.
Zunsemetinib, an Investigational Oral MK2 Inhibitor
Zunsemetinib (ATI-450) is an investigational oral, novel, small molecule selective inhibitor of the mitogen-activated protein kinase-activated protein kinase 2 (“MK2”) signaling pathway for the potential treatment of metastatic breast cancer (“MBC”) and pancreatic ductal adenocarcinoma (“PDAC”).
We are supporting Washington University in St. Louis in its investigator-initiated Phase 1b/2 trials of zunsemetinib in patients with MBC and PDAC. We expect these trials to be primarily funded by grants awarded to Washington University.
Discovery Programs and KINect Drug Discovery Platform
We conduct small molecule drug discovery and preclinical development research through KINect, our proprietary drug discovery platform, which we acquired as part of our acquisition of Confluence Life Sciences, Inc. (now known as Aclaris Life Sciences, Inc.) (“Confluence”), in 2017. Our KINect platform enables us to identify potential small molecule product candidates through a unique combination of our proprietary chemical library of kinase inhibitors, our novel approaches to inhibitor modalities, our expertise in structure-based drug design, and our custom kinase assays.
Our focus has been on difficult to drug kinase targets that exhibit some level of clinical, genetic and/or pharmacological disease validation. Our approach involves the following mechanisms: (1) reversible and irreversible covalent inhibitors, (2) molecular glue/complex targeted inhibitors and (3) targeted protein degraders. These novel
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approaches are currently being utilized to prosecute additional validated, difficult to drug kinase targets with the goal of demonstrating potential platform utility.
We are actively progressing several discovery programs focused on delivering the next wave of small and large molecule product candidates. Our small molecule discovery efforts center on targeting kinases that play pivotal roles in various inflammatory, autoimmune, and oncology pathways. For example, we are progressing to development candidate selection a second generation ITK selective inhibitor designed to eliminate crossover on JAK3 for autoimmune indications.
In addition to our small molecule discovery efforts, we maintain capabilities in biologics discovery to complement our therapeutic portfolio. Through our integrated discovery platform, we can progress biologics candidates from concept through lead optimization, employing robust screening cascades and protein characterization techniques to identify molecules with desired therapeutic properties. This complementary approach to our small molecule programs enables us to pursue optimal therapeutic modalities for each target and indication of interest. For example, we are conducting pre-clinical research to develop next-generation bispecific antibodies utilizing the bosakitug anti-TSLP binding region paired with binding fragments targeting other undisclosed cytokine signaling pathways.
We intend to evaluate both internal and external development options, including strategic partnerships, for these assets.
Financial Overview
Since our inception, we have incurred significant net losses. Our net loss was 30.5 million for the six months ended June 30, 2025 and $132.1 million for the year ended December 31, 2024. As of June 30, 2025, we had an accumulated deficit of $933.4 million. We expect to incur significant expenses and operating losses for the foreseeable future as we advance our product candidates from discovery through preclinical and clinical development. In addition, our product candidates, even if they are approved by regulatory agencies for marketing, may not achieve commercial success. We may also not be successful in pursuing strategic alternatives, including identifying and consummating transactions with third-party partners, to further develop, obtain marketing approval for and/or commercialize our product candidates. Furthermore, we have incurred and expect to continue to incur significant costs associated with operating as a public company, including legal, accounting, investor relations and other expenses. As a result, we will need substantial additional funding to support our continuing operations.
We have historically financed our operations primarily with sales of equity securities and incurring indebtedness in the form of loans from commercial lenders. In the near term, we expect to finance our operations through these and other capital sources, including potential partnerships with other companies or other strategic transactions. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on commercially acceptable terms, or at all. If we fail to raise capital or enter into such agreements as, and when needed, we may have to significantly delay, scale back or discontinue the development of one or more of our product candidates.
Impact of Macroeconomic Conditions on Our Business
Unfavorable conditions in the economy both in the United States and abroad may negatively affect the growth of our business and our results of operations. For example, macroeconomic events, including inflationary pressure, tariff policies and geopolitical conflicts, have led to economic uncertainty globally. The effect of macroeconomic conditions may not be fully reflected in our results of operations until future periods. If, however, economic uncertainty increases or the global economy worsens, our business, financial condition and results of operations may be harmed.
Acquisition and License Agreements
Exclusive License Agreement with Biosion
In November 2024, we entered into an exclusive license agreement (the “Biosion Agreement”) with Biosion pursuant to which we received the exclusive rights to develop, manufacture and commercialize bosakitug and ATI-052 worldwide, excluding Greater China. In connection with the Biosion Agreement, we also entered into a collaboration agreement (the “CTTQ Agreement”) with Biosion and CTTQ, a licensee of bosakitug in Greater China.
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As partial consideration for the rights and licenses under the Biosion Agreement and CTTQ Agreement, we agreed to, in the aggregate, (i) pay $30.0 million in upfront cash consideration, plus $4.5 million for the reimbursement of certain development costs, (ii) issue warrants (the “Warrants”) to purchase 14,281,985 shares of our common stock and (iii) pay $6.2 million for the reimbursement of certain development costs and drug product material as set forth in the Biosion Agreement.
In addition, we agreed to pay, in the aggregate, (i) up to $125 million upon the achievement of specified regulatory milestones commencing with product approval, (ii) up to $795 million upon the achievement of specified sales milestones, (iii) a tiered low-to-mid single digit royalty based upon a percentage of annual net sales, subject to specified reductions as set forth in the Biosion Agreement, and (iv) a portion of any sublicense consideration received from the grant of any sublicense or similar rights under any of the rights or licenses granted to us under the Biosion Agreement. We will expense these payments in the period when either they are determined to be probable of occurring or when the payment is triggered.
Royalty Purchase Agreement with OCM IP Healthcare Portfolio LP
In July 2024, we entered into a royalty purchase agreement with OCM IP Healthcare Portfolio LP, an investment vehicle for Ontario Municipal Employees Retirement System (“OMERS”). Under the royalty purchase agreement, we sold to OMERS a portion of the future royalty payments and the remaining anniversary payments associated with our existing license to Eli Lilly and Company (“Lilly”), relating to OLUMIANT® (baricitinib) for the treatment of alopecia areata (see “—License Agreement with Eli Lilly and Company”). Under the terms of the royalty purchase agreement, we received an upfront payment of $26.5 million. In exchange, OMERS acquired a portion of the royalty payable by Lilly to us for worldwide net sales of OLUMIANT for the treatment of alopecia areata from April 1, 2024 through the remainder of the royalty term under our license agreement with Lilly, and 100% of the remaining anniversary milestone payments payable by Lilly to us under the license agreement. The royalty payments and milestones we sold to OMERS represent our entire financial interest in the Lilly license agreement after taking into account our other contractual third-party obligations.
We recognized $1.0 million and $1.8 million of non-cash royalty income during the three and six months ended June 30, 2025, respectively.
License Agreement with Sun Pharmaceutical Industries, Inc.
In December 2023, we entered into an exclusive patent license agreement with Sun Pharmaceutical Industries, Inc. (“Sun Pharma”). Under the license agreement, we granted Sun Pharma exclusive rights under certain patents that we exclusively license from a third party. The patents relate to the use of deuruxolitinib, Sun Pharma’s JAK inhibitor, or other isotopic forms of ruxolitinib, to treat alopecia areata or androgenetic alopecia. Under the license agreement, Sun Pharma has paid us upfront and regulatory payments, and has agreed to pay us other regulatory and commercial milestone payments upon the achievement of specified milestones set forth in the agreement, and a mid single-digit tiered royalty calculated as a percentage of Sun Pharma’s net sales. We have separate contractual obligations under which we have agreed to pay to third parties a portion of the consideration we may receive under the license agreement. We may seek to monetize this asset.
License Agreement with Pediatrix Therapeutics, Inc.
In November 2022, we entered into a license agreement with Pediatrix under which we granted Pediatrix the exclusive rights to develop, manufacture and commercialize lepzacitinib in Greater China. Pediatrix has paid us an upfront payment, and has agreed to pay us development, regulatory and commercial milestone payments upon the achievement of specified milestones set forth in the agreement, and a tiered royalty ranging from a low-to-high single digit percentage of net sales of lepzacitinib by Pediatrix in Greater China. A portion of the consideration received from Pediatrix is payable to the former Confluence equity holders as described below under the caption “—Agreement and Plan of Merger with Confluence.”
License Agreement with Eli Lilly and Company
In August 2022, we entered into a non-exclusive patent license agreement with Lilly. Under the license
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agreement, we granted Lilly non-exclusive rights under certain patents and patent applications that we exclusively license from a third party. The patents and patent applications relate to the use of baricitinib, Lilly’s JAK inhibitor, to treat alopecia areata. Under the license agreement, Lilly has paid us upfront, anniversary, regulatory and commercial milestone payments. In addition, Lilly has agreed to pay us other commercial milestone payments upon the achievement of specified milestones and additional anniversary payments as set forth in the agreement, as well as a low single-digit royalty calculated as a percentage of Lilly’s net sales of baricitinib for the treatment of alopecia areata. We have separate contractual obligations under which we have agreed to pay to third parties an amount equal to any regulatory and commercial milestone payments we receive under the Lilly license agreement, as well as a portion of the upfront consideration and a portion of the royalties we may receive under the license agreement. In July 2024, we entered into a royalty purchase agreement with OMERS pursuant to which we sold to OMERS a portion of our future royalty payments and the remaining anniversary payments associated with the license to Lilly (see “—Royalty Purchase Agreement with OCM IP Healthcare Portfolio LP” above).
We recognized $1.3 million and $2.3 million of licensing revenue during the three and six months ended June 30, 2025, respectively, all of which was payable to third parties. We recognized $2.1 million and $3.9 million of licensing revenue during the three and six months ended June 30, 2024, respectively, a portion of which was payable to third parties.
Asset Purchase Agreement with EPI Health
In October 2019, we sold RHOFADE (oxymetazoline hydrochloride) cream, 1% (“RHOFADE”), to EPI Health, LLC (“EPI Health”) pursuant to an asset purchase agreement. In July 2023, EPI Health filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. Through the bankruptcy process, EPI Health and its parent company, Novan, Inc., sold the RHOFADE assets to a third party, which excluded our asset purchase agreement with EPI Health and the outstanding amounts due. The sale was approved by the bankruptcy court in September 2023. As a result of the bankruptcy proceedings, all amounts that are due and outstanding by EPI Health have been fully reserved.
Agreement and Plan of Merger with Confluence
In 2017, we entered into an Agreement and Plan of Merger (the “Confluence Agreement”), with Confluence, Aclaris Life Sciences, Inc., our wholly owned subsidiary (“Merger Sub”), and Fortis Advisors LLC, as representative of the equity holders of Confluence. Pursuant to the terms of the Confluence Agreement, Merger Sub merged with and into Confluence, with Confluence surviving as our wholly owned subsidiary.
Under the Confluence Agreement, we agreed to pay the former Confluence equity holders aggregate remaining contingent consideration of up to $75.0 million based upon the achievement of specified regulatory and commercial milestones set forth in the Confluence Agreement. In addition, we agreed to pay the former Confluence equity holders future royalty payments calculated as a low single-digit percentage of annual net sales, subject to specified reductions, limitations and other adjustments, until the date that all of the patent rights for that product have expired, as determined on a country-by-country and product-by-product basis or, in specified circumstances, ten years from the first commercial sale of such product. In addition to the payments described above, if we sell, license or transfer any of the intellectual property acquired from Confluence pursuant to the Confluence Agreement to a third party, we will be obligated to pay the former Confluence equity holders a portion of any consideration received from such sale, license, or transfer in specified circumstances.
Discontinued Programs
We were previously developing zunsemetinib as a potential treatment for various immuno-inflammatory diseases, including hidradenitis suppurativa, psoriatic arthritis, and rheumatoid arthritis. Following the results of the Phase 2 trials for these programs, we discontinued further development of our MK2 inhibitor programs in immuno-inflammatory diseases in 2023.
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Restructuring
In December 2023, our board of directors approved a reduction of our workforce by approximately 46%, which was completed as of December 31, 2024. During the six months ended June 30, 2025, we made cash severance payments of $0.2 million to impacted employees. During the three and six months ended June 30, 2024, we recognized severance expense of $0.1 million and $2.6 million, respectively, and made cash severance payments of $4.5 million to impacted employees during the six months ended June 30, 2024.
Components of Our Results of Operations
Revenue
Contract Research
We earn revenue from the provision of laboratory services. Contract research revenue is generally evidenced by contracts with clients which are on an agreed upon fixed-price, fee-for-service basis and are generally billed on a monthly basis in arrears for services rendered.
Licensing
Licensing revenue primarily consists of upfront consideration, royalties and milestone payments earned pursuant to license and acquisition agreements with third parties, as described above.
Cost and Expenses
Cost of Revenue
Cost of revenue consists of the costs incurred in connection with the provision of contract research services. Cost of revenue primarily includes:
● employee-related expenses, which include salaries, benefits, and stock-based compensation;
● outsourced professional scientific services;
● depreciation of laboratory equipment;
● facility-related costs; and
● laboratory materials and supplies used to support the services provided.
Research and Development
Research and development expenses consist of expenses incurred in connection with the discovery and development of our product candidates. These expenses primarily include:
● expenses incurred under agreements with contract research organizations (“CROs”), as well as clinical trial sites and consultants that conduct our clinical trials and preclinical studies, and investigator-initiated trials;
● manufacturing scale-up expenses and the cost of acquiring and manufacturing active pharmaceutical ingredients and preclinical and clinical trial materials, including domestic technology transfer expenses;
● quality assurance and quality control costs;
● outsourced professional scientific development services;
● medical affairs expenses related to our product candidates;
● employee-related expenses, which include salaries, benefits, and stock-based compensation;
● expenses relating to regulatory activities, including filing fees paid to regulatory agencies; and
● laboratory materials and supplies used to support our research activities.
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Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect to continue to incur research and development expenses in the near term as we continue the development of our product candidates and pursue our discovery programs. We expense research and development costs as incurred. Our direct research and development expenses primarily consist of external costs including fees paid to CROs, consultants, clinical trial sites, regulatory agencies and third parties that manufacture our preclinical and clinical trial materials and are tracked on a program-by-program basis. We do not allocate personnel costs or other indirect expenses to specific research and development programs.
The successful development of our product candidates is highly uncertain. We cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the remainder of the development of, or when, if ever, material net cash inflows may commence from any of our product candidates. This uncertainty is due to the numerous risks and uncertainties associated with the duration and cost of discovery, as well as clinical trials, which vary significantly over the life of a project as a result of many factors, including:
● the number of clinical sites included in the trials;
● the length of time required to enroll suitable subjects;
● the number of subjects that ultimately participate in the trials;
● the number of doses subjects receive;
● the duration of subject follow-up; and
● the results of our clinical trials.
Our expenditures are subject to additional uncertainties, including the preparation of regulatory filings for our product candidates. We may obtain unexpected results from our clinical trials or other development activities. We may elect to discontinue, delay or modify the development, including clinical trials, of some product candidates or focus on others. A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development.
General and Administrative
General and administrative expenses consist principally of salaries and related costs, including stock-based compensation, for personnel in executive, administrative, finance and legal functions. General and administrative expenses also include facility-related costs, patent filing and prosecution costs, professional fees for legal, auditing and tax services, investor relations costs, business development costs, insurance costs, and travel expenses.
Licensing
Licensing expenses consist of third-party contractual obligations incurred under license and acquisition agreements with third parties, as described above.
Revaluation of Contingent Consideration
Revaluation of contingent consideration consists of changes in the fair value of our contingent consideration liability between reporting dates, as described below.
Other Income
Interest Income
Interest income primarily consists of interest earned on our cash, cash equivalents and marketable securities.
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Non-cash Royalty Income
Non-cash royalty income includes income related to the proceeds from the sale of future royalties to OMERS, recognized under the “units-of-revenue” method.
Critical Accounting Estimates
This discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of our condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our condensed consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and judgments on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. There have been no material changes to our significant accounting policies and use of estimates as disclosed in the footnotes to our audited consolidated financial statements for the year ended December 31, 2024 included in our Annual Report.
Contingent Consideration
We record a contingent consideration liability related to future potential payments resulting from the acquisition of Confluence based upon significant unobservable inputs including the achievement of regulatory and commercial milestones, as well as estimated future sales levels and the discount rates applied to calculate the present value of the potential payments. Significant judgement is involved in determining the appropriateness of these assumptions. These assumptions are considered Level 3 inputs. Revaluation of our contingent consideration liability can result from changes to one or more of these assumptions. These assumptions are highly dependent on the outcome and timing of the development of certain of our product candidates. We evaluate the fair value estimate of our contingent consideration liability on a quarterly basis with changes, if any, recorded as income or expense in our condensed consolidated statement of operations and comprehensive loss. Any such changes could have a material impact on our financial results.
The fair value of contingent consideration is estimated using a probability-weighted expected payment model for regulatory milestone payments and a Monte Carlo simulation model for commercial milestone and royalty payments and then applying a risk-adjusted discount rate to calculate the present value of the potential payments. Significant assumptions used in our estimates include the probability of achieving regulatory milestones and commencing commercialization (collectively referred to as “probability of success”), which are based on an asset’s current stage of development and a review of existing clinical data. Probability of success assumptions ranged between 21% and 40% at June 30, 2025. Additionally, estimated future sales levels and the risk-adjusted discount rate applied to the potential payments are also significant assumptions used in calculating the fair value. As of June 30, 2025, the discount rate ranged between 6.3% and 7.9% depending on the year of each potential payment.
During the six months ended June 30, 2025, we recorded a charge to the contingent consideration liability of $1.8 million, which was primarily due to changes to the probability of success for certain product candidates and lower discount rates resulting from changes in credit spreads being applied to potential payments.
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Results of Operations
Comparison of Three and Six Months Ended June 30, 2025 and 2024
Three Months Ended June 30,
Six Months Ended June 30,
(In thousands)
2025
2024
Change
2025
2024
Change
Revenues:
Contract research
$
442
$
625
$
(183)
$
887
$
1,281
$
(394)
Licensing
1,335
2,141
(806)
2,345
3,882
(1,537)
Total revenue
1,777
2,766
(989)
3,232
5,163
(1,931)
Costs and expenses:
Cost of revenue
515
624
(109)
1,021
1,433
(412)
Research and development
11,449
8,759
2,690
23,033
18,604
4,429
General and administrative
5,386
4,752
634
11,525
11,596
(71)
Licensing
1,335
1,285
50
2,345
2,316
29
Revaluation of contingent consideration
1,500
200
1,300
1,800
3,000
(1,200)
Total costs and expenses
20,185
15,620
4,565
39,724
36,949
2,775
Loss from operations
(18,408)
(12,854)
(5,554)
(36,492)
(31,786)
(4,706)
Other income:
Interest income
2,018
1,868
150
4,184
3,859
325
Non-cash royalty income
961
—
961
1,794
—
1,794
Total other income
2,979
1,868
1,111
5,978
3,859
2,119
Net loss
$
(15,429)
$
(10,986)
$
(4,443)
$
(30,514)
$
(27,927)
$
(2,587)
Revenue
Contract research
The decrease in contract research revenue for the three and six months ended June 30, 2025 compared to the three and six months ended June 30, 2024, respectively, was driven by lower overall hours billed, which was partially offset by a higher average billing rate.
Licensing
The decrease in licensing revenue during the three and six months ended June 30, 2025 compared to the three and six months ended June 30, 2024 was primarily driven by lower royalties earned following the sale of a portion of our OLUMIANT® royalty payments to OMERS in July 2024.
Costs and Expenses
Cost of Revenue
The decrease in cost of revenue for the three and six months ended June 30, 2025 compared to the three and six months ended June 30, 2024 was driven by lower overall hours billed for laboratory services.
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Research and Development
The following table summarizes our research and development expenses by product candidate or, for unallocated expenses, by type:
Three Months Ended
Six Months Ended
June 30,
June 30,
(In thousands)
2025
2024
Change
2025
2024
Change
Bosakitug
$
2,847
$
—
$
2,847
$
6,231
$
—
$
6,231
ATI-2138
1,118
753
365
2,926
815
2,111
ATI-052
1,418
—
1,418
2,037
—
2,037
Lepzacitinib
—
296
(296)
—
1,368
(1,368)
Zunsemetinib
105
2,490
(2,385)
216
4,514
(4,298)
Discovery
1,620
1,605
15
2,966
3,145
(179)
Other research and development
251
189
62
455
662
(207)
Personnel
2,984
2,329
655
5,911
7,032
(1,121)
Stock-based compensation
1,106
1,097
9
2,291
1,068
1,223
Total research and development expenses
$
11,449
$
8,759
$
2,690
$
23,033
$
18,604
$
4,429
Bosakitug
The expenses incurred for bosakitug during the three and six months ended June 30, 2025 consisted primarily of product candidate manufacturing costs and clinical development expenses associated with a Phase 2 trial in atopic dermatitis.
ATI-2138
The increase in expenses for ATI-2138 during the three and six months ended June 30, 2025 compared to the three and six months ended June 30, 2024 was primarily due to preclinical development activities and clinical development expenses associated with a Phase 2a trial in atopic dermatitis.
ATI-052
Research and development expenses related to ATI-052 for the three and six months ended June 30, 2025 primarily consisted of product candidate manufacturing costs, preclinical development activities, and clinical development expenses associated with a Phase 1a/1b program.
Lepzacitinib
The expenses for lepzacitinib during the three and six months ended June 30, 2024 were primarily preclinical development activities and clinical development expenses associated with a Phase 2b clinical trial in subjects with atopic dermatitis, which was completed in January 2024.
Zunsemetinib
The decrease in expenses for zunsemetinib during the three and six months ended June 30, 2025 compared to the three and six months ended June 30, 2024 was primarily due to a decrease in costs associated with Phase 2 clinical development activities.
Personnel and stock-based compensation
The increase in personnel expenses during the three months ended June 30, 2025 compared to the three months ended June 30, 2024 was primarily due to higher headcount. The decrease in personnel expenses during the six months ended June 30, 2025 compared to the six months ended June 30, 2024 was primarily due to termination benefits associated with our December 2023 reduction in force recognized during the six months ended June 30, 2024. The increase in stock-
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based compensation expense during the six months ended June 30, 2025 compared to the six months ended June 30, 2024 was due to higher forfeiture credits during the six months ended June 30, 2024.
General and Administrative
The following table summarizes our general and administrative expenses:
Three Months Ended
Six Months Ended
June 30,
June 30,
(In thousands)
2025
2024
Change
2025
2024
Change
Personnel
$
1,852
$
1,297
$
555
$
3,737
$
3,852
$
(115)
Professional and legal fees
800
774
26
1,917
2,027
(110)
Facility and support services
627
563
64
1,224
1,196
28
Other general and administrative
340
535
(195)
749
1,072
(323)
Stock-based compensation
1,767
1,583
184
3,898
3,449
449
Total general and administrative expenses
$
5,386
$
4,752
$
634
$
11,525
$
11,596
$
(71)
Personnel and stock-based compensation
The increase in personnel expenses during the three months ended June 30, 2025 compared to the three months ended June 30, 2024 was primarily due to higher headcount. The increase in stock-based compensation expense during the three and six months ended June 30, 2025 compared to the three and six months ended June 30, 2024 was due to higher forfeiture credits during the three and six months ended June 30, 2024.
Revaluation of Contingent Consideration
The revaluation of contingent consideration loss increased during the three months ended June 30, 2025 compared to the three months ended June 30, 2024 mainly due to changes to the probability of success for certain product candidates and lower discount rates resulting from changes in credit spreads being applied to potential payments during the three months ended June 30, 2025.
The revaluation of contingent consideration loss decreased during the six months ended June 30, 2025 compared to the six months ended June 30, 2024 mainly due to changes in estimated sales levels and changes to the probability of success for certain product candidates during the six months ended June 30, 2024.
Other Income
Non-cash Royalty Income
Non-cash royalty income includes income related to the proceeds from the sale of a portion of our OLUMIANT® royalty payments to OMERS.
Liquidity and Capital Resources
Overview
Since our inception, we have incurred net losses and negative cash flows from our operations. We have financed our operations over the last several years primarily through sales of our equity securities and incurring indebtedness in the form of loans from commercial lenders. We may engage in additional debt and equity financing transactions in order to raise funds. We may receive royalties and milestone payments under third-party licensing and acquisition agreements. In addition, to the extent we are able to consummate transactions with potential third-party partners to further develop, obtain marketing approval for and/or commercialize our product candidates, we may receive upfront payments, milestone payments or royalties from such arrangements that would increase our liquidity.
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As of June 30, 2025, we had cash, cash equivalents and marketable securities of $180.9 million. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view towards liquidity and capital preservation.
We currently have no ongoing material financing commitments, such as lines of credit or guarantees, that are expected to affect our liquidity, other than our contingent obligations under the Confluence Agreement, Biosion Agreement and CTTQ Agreement, which are summarized above under “Overview—Acquisition and License Agreements, ” and our lease obligations.
Cash Flows
Cash and cash equivalents were $25.4 million as of June 30, 2025 compared to $24.6 million as of December 31, 2024. We also had $155.5 million in short- and long-term marketable securities as of June 30, 2025 compared to $179.3 million as of December 31, 2024.
The sources and uses of cash that contributed to the change in cash and cash equivalents were:
Six Months Ended
June 30,
(In thousands)
2025
2024
Cash and cash equivalents beginning balance
$
24,570
$
39,878
Net cash used in operating activities
(23,050)
(33,137)
Net cash provided by investing activities
24,166
16,159
Net cash used in financing activities
(284)
(66)
Cash and cash equivalents ending balance
$
25,402
$
22,834
Operating Activities
Cash flow related to operating activities was the result of:
Six Months Ended
June 30,
(In thousands)
2025
2024
Net loss
$
(30,514)
$
(27,927)
Non-cash adjustments to reconcile net loss to net cash used in operating activities
8,640
8,477
Change in accounts receivable
124
(27)
Change in prepaid expenses and other assets
7,031
2,317
Change in accounts payable and accrued expenses
(6,536)
(15,977)
Change in deferred income
(1,795)
—
Net cash used in operating activities
$
(23,050)
$
(33,137)
Net cash used in operating activities decreased for the six months ended June 30, 2025 compared to the six months ended June 30, 2024 primarily as a result of a decrease in cash used for accounts payable and accrued expenses, after adjusting for the receipt and corresponding payment of a third-party milestone during the six months ended June 30, 2025.
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Investing Activities
Cash flow related to investing activities was the result of:
Six Months Ended
June 30,
(In thousands)
2025
2024
Purchases of property and equipment
$
(64)
$
(121)
Purchases of marketable securities
(29,926)
(35,218)
Proceeds from sales and maturities of marketable securities
54,989
51,498
Payment of deferred transaction consideration for in-licensed assets
(833)
—
Net cash provided by investing activities
$
24,166
$
16,159
The increase in net cash provided by investing activities for the six months ended June 30, 2025 compared to the six months ended June 30, 2024 resulted primarily from lower purchases of marketable securities and higher proceeds from sales and maturities of marketable securities during the six months ended June 30, 2025.
Financing Activities
Cash flow related to financing activities was the result of:
Six Months Ended
June 30,
(In thousands)
2025
2024
Payments of employee withholding taxes related to restricted stock unit award vesting
$
(284)
$
(66)
Net cash used in financing activities
$
(284)
$
(66)
Net cash used in financing activities increased for the six months ended June 30, 2025 compared to the six months ended June 30, 2024 due to higher payments of employee withholding taxes related to restricted stock unit award vesting.
Funding Requirements
We anticipate we will incur net losses in the near term as we continue the development of our product candidates and continue to discover and develop additional product candidates. We may not be able to generate revenue from these programs if, among other things, our clinical trials are not successful, the FDA does not approve our product candidates currently in clinical trials when we expect, or at all, or we are not able to identify and consummate transactions with third-party partners to further develop, obtain marketing approval for and/or commercialize our product candidates.
Our primary uses of capital are, and we expect will continue to be, research and development expenses, compensation and related expenses, laboratory and related supplies, professional and legal expenses, and administrative and overhead costs. Our future funding requirements will be heavily determined by the resources needed to support the development of our product candidates, without taking into account any potential business development activities.
As a publicly traded company, we incur and will continue to incur significant legal, accounting, and other similar expenses. In addition, the Sarbanes-Oxley Act of 2002, as well as rules adopted by the SEC and the Nasdaq Stock Market LLC, requires public companies to implement specified corporate governance practices that could increase our compliance costs.
We believe our existing cash, cash equivalents and marketable securities are sufficient to fund our operating and capital expenditure requirements for a period greater than 12 months from the date of issuance of our condensed consolidated financial statements that appear in Item 1 of this Quarterly Report on Form 10-Q based on our current operating assumptions. We will require additional capital to develop our product candidates and to support our discovery efforts. Additional funds may not be available on a timely basis, on commercially acceptable terms, or at all, and such funds, if raised, may not be sufficient to enable us to continue to implement our long-term business strategy. Our ability to raise additional capital may be adversely impacted by potentially worsening global economic conditions caused by a
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variety of factors including geopolitical tensions, tariff policies and inflationary pressures. If we are unable to raise sufficient additional capital or generate revenue from transactions with potential third-party partners for the development and/or commercialization of our product candidates, we may need to substantially curtail our planned operations.
We may raise additional capital through the sale of equity or debt securities. In such an event, our stockholders’ ownership will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of a holder of our common stock.
Because of the numerous risks and uncertainties associated with research and development of pharmaceutical product candidates, we are unable to estimate the exact amount of our working capital requirements. Our funding requirements in the near term will depend on many factors, including:
● the number and development requirements of the product candidates that we may pursue;
● the scope, progress, results and costs of preclinical development, laboratory testing and conducting preclinical and clinical trials for our product candidates;
● the costs, timing, and outcome of regulatory review of our product candidates;
● the extent to which we in-license or acquire additional product candidates and technologies;
● the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;
● our ability to identify and consummate transactions with third-party partners to further develop, obtain marketing approval for and/or commercialize our product candidates; and
● our ability to earn revenue as a result of licenses to, or partnerships or other arrangements with, third parties.
Leases
We occupy space for our headquarters in Wayne, Pennsylvania under a lease agreement which has a term through February 2029. We also occupy office and laboratory space in St. Louis, Missouri under a sublease agreement which has a term through May 2029.
Our aggregate remaining lease payment obligation for these two spaces was $2.9 million as of June 30, 2025.
Agreement and Plan of Merger with Confluence
We have agreed to certain payment obligations in accordance with and subject to the terms of the Confluence Agreement (see “Overview—Acquisition and License Agreements—Agreement and Plan of Merger with Confluence”). As of June 30, 2025, the balance of our contingent consideration liability was $10.5 million.
Exclusive License Agreement with Biosion; Collaboration Agreement with Biosion and CTTQ
We have agreed to certain payment obligations in accordance with and subject to the terms of the Biosion and CTTQ Agreements (see “Overview—Acquisition and License Agreements—Exclusive License Agreement with Biosion”).
R&D Obligations
We enter into contracts in the normal course of business with CROs, contract manufacturing organizations and other service providers for clinical trials, preclinical studies and testing, manufacturing and other services and products for operating purposes. These contracts generally provide for termination upon notice, and therefore we believe that our non-cancelable obligations under these agreements are not material.
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Segment Information
We have two reportable segments, therapeutics and contract research. The therapeutics segment is focused on identifying and developing innovative therapies to address significant unmet needs for immuno-inflammatory diseases. The contract research segment earns revenue from the provision of laboratory services.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.